end-to-end M&A process, particularly during integration. This cannot be treated as a side activity. The complexity a
Merger and Acquisition Advisory Post-Merger Integration Deal Value Realisation
MERGERS AND ACQUISITIONS FOR SMES – AN OVERVIEW EXECUTIVE SUMMARY
CHALLENGES FACED IN M&A
Companies have two strategic routes to growth -
M&A is not Business as Usual. Failing to properly
Build or Buy. Building the business organically is
manage M&A means the deal benefits will not be
less risky, but will take longer to deliver results.
delivered, and may put the whole business at risk.
Inorganic growth through Merger and Acquisition (M&A) can achieve your objectives more quickly but has the potential to be riskier, with higher up-front costs.
Most businesses do not have the skills, experience or bandwidth to manage this successfully. Leaders cannot dedicate the time needed to manage the end-to-end M&A process, particularly during
In bringing two companies together, opportunities
integration. This cannot be treated as a side activity.
for growth and cost synergies must be sought over
The complexity and effort of managing an
and above the intrinsic value of each business. It is
acquisition must not be underestimated.
these Value Drivers that enable a successful deal to deliver an outcome that is greater than the sum of its parts. However, the definition and delivery of these requires careful planning and management, with a clear understanding of the risks involved. In addition to the successful delivery of the Value Drivers, business transformation will be needed changing the Operating Model. This change will
The challenge for an acquirer is to successfully realise the Value Drivers and deliver Operating Model change, while maintaining the value and performance of both underlying businesses. Many specific problems will be faced, such as: •
must be prioritised to maximise benefits while
depend on the level of Integration, i.e. the degree
also covering the ‘must-do’ operating model
to which the two businesses are combined. This
changes. External support to manage the deal
Operating Model change can add significant further
will allow management to focus on the business.
complexity to the deal. Business owners and senior managers are busy
•
Existing revenue streams must be protected to
about M&A processes or running an Integration
preserve the baseline revenue. Management
programme. Managing M&A deals can easily be a
must focus on running the business while a
full-time role and attempting to balance these with and business failure.
project team manages the integration. •
and cost control. Risks, issues, assumptions and
1
on investment . deals can actively damage the business, destroying shareholder value and impacting ability to compete. Can you guarantee your investors that you can
Maintaining Control – Strong governance and oversight is needed to ensure benefit delivery
75% of M&A deals fail to deliver a clear return In the worst cases, poorly selected or managed
Maintaining Business Performance – There is often a dip in performance after a deal closes.
enough running their companies without learning
day-to-day responsibilities can be a catalyst for deal
Resource Constraints – Company resources
dependencies must be carefully managed. •
Financial Tracking – The realisation of Value Drivers and Synergies must be tracked against the plan using clearly defined metrics and KPIs. The Integration budget to deliver these and the
make a success of your acquisitions?
operating model change must be developed and
RitchieHogg can help you make this happen.
total transaction cost.
tracked. This budget may be up to 30% of the
1
Christensen et al, The Big Idea: The New M&A Playbook, Harvard Business Review, March 2011
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Merger and Acquisition Advisory Post-Merger Integration Deal Value Realisation •
Operating Model Change – What will the new
•
business look like on Day 1 and Day 100, and how will it change further in the long term?
buy rather than build, and what are your goals? •
Why have you chosen this acquisition target?
This change will depend on the level of
Have you screened, assessed other options and
Integration, i.e. the degree to which the two
performed full due diligence?
businesses are combined. The integration plan must take account of any cross-functional dependencies such as IT change to support the delivery of the synergies. •
What is the strategic rationale for the deal? Why
People Challenges – Perhaps the most complex element of M&A is the People impact. Communication is the key to minimising uncertainty and associated productivity issues, but this is only part of the wider stakeholder management plan. Decisions must be made
•
1 + 1 end up greater than 2? •
KEY QUESTIONS TO CONSIDER If you are planning an acquisition, are you clear on what is needed to ensure success?
How detailed are the cost and growth synergy estimates used in the financial model?
•
Do you understand the plans, risks, assumptions and dependencies to achieve the value drivers?
•
How, to what level and at what speed will you integrate? How much will this cost?
•
How will you ensure the deal value is realised? Who is accountable for the results?
around organisation design and retention of key people where there is a risk of loss.
What are the value drivers for the deal? How will
•
What are the right operating models within each of your key businesses / functions?
•
What will change on Day 1, Day 100 and in the longer term?
•
Are you clear on cultural differences and other people impacts and how best to address them?
If you cannot clearly answer the following questions,
Does your team have the experience,
you risk your deal being one of many which fail to
capabilities AND the bandwidth to deliver?
provide a positive return on investment.
HOW WE CAN SUPPORT YOU RitchieHogg was established to address the
•
challenges of M&A in the SME environment.
Diligence Management – Reviewing acquisition options, and assessing the risks and value of
We have identified the best practices for M&A processes and Post-Merger Integration projects. You gain from our experience working on complex deals
screened targets through Due Diligence. •
corporations, and made these available to smaller
Synergy opportunities. •
programme and delivering benefits faster with
large advisor.
lower risk. Controlling people and change
The services shown below in the RitchieHogg M&A Mergers and Acquisitions: •
M&A Process Advice – Briefings and coaching for company leadership, establishing best practice processes for M&A; and M&A training for deal teams.
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Post-Merger Integration (PMI) Programme Management – Planning and managing the
businesses that cannot justify the cost or scale of a
Framework cover the end-to-end process of
Value Driver and Synergy Development – Establishing and quantifying Value Drivers and
with frequent acquirers and leading consultancies. We have taken the lessons learned by large
Target Analysis, Assessment and Due
management risks. •
Deal Value Realisation – Accelerating value delivery through synergy delivery projects.
•
Strategic Development Options Advisory Services – Ongoing support as a ‘Virtual Strategy Director’ to identify and assess strategic growth opportunities.
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Merger and Acquisition Advisory Post-Merger Integration Deal Value Realisation
OUR EXPERIENCE
WHY ENGAGE RITCHIEHOGG?
The RitchieHogg team has supported deals in
We have a simple objective in supporting you and
multiple industries and at a range of sizes. We use
your deals. We will make sure you are one of the
and share the lessons from all these deals in each of
minority who succeed. We will help you:
our engagements. Deals supported include: • •
•
Private Equity led vehicle rental business
We will maximise synergies by optimising
acquisition.
business cases and reducing uncertainty.
Global Life and Pensions acquisition integration
Additional synergies will be identified and projects will be prioritised to give the best
– European regional leadership. •
outcome for scarce resources. Management is
Leading UK Insurer acquisition of motoring
freed up to maintain focus on running the
services firm. •
Japanese pharmaceutical industry merger.
•
Global bank divestiture separation & transition
business. •
Achieve the objectives faster - Effective project management delivers synergies and
service agreement (TSA) planning. •
Increase the value realised from your deals -
operating model change more quickly. Faster
Corporate Development function for a global IT
return on investment improves deal value
company.
outcomes. •
Reduce the risk to your business - We will identify key assumptions, dependencies and risks at an early stage, and stop them becoming issues. Strong governance and reporting will be implemented to further reduce risk.
CONTACT US 75% of mergers and acquisitions fail. Contact us today to make sure yours is not one of them:
[email protected] +44 (0) 7764–667013 https://www.ritchiehogg.co.uk/overview
© 2017 RitchieHogg Limited
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Merger and Acquisition Advisory Post-Merger Integration Deal Value Realisation
MERGER AND ACQUISITION GLOSSARY If you are new to M&A, many of the terms used can be confusing. Some terms are common to project management or other business activities, but can take on a specific significance when applied to M&A. The following simple definitions may help understand the terminology within this context: Acquisition – Transaction in which one company takes ownership of another through the purchase of shareholding or assets. Acquisition Target – A company that has been screened and assessed to confirm that it is a potential option to be acquired. Assessment – Review of a potential acquisition target to determine affordability and suitability in relation to the strategic rationale. Assumption – Educated guess used to estimate synergy opportunities, valuation and project risks. Validated through due diligence or post-close. Close – Finalisation of a transaction. Company ownership changes hands following payment. Dependency – Within an integration project, a requirement for one action to be completed to enable a result to be achieved, e.g.to consolidate to one location, construction work may be required. Divestiture – Transaction in which a business is sold. A partial divestiture is a Carve-out. Due Diligence – The process of collecting and reviewing information about an acquisition target. Carried out after assessment by making data requests to the target business. Includes financial, legal and operational data gathering. Enables some assumptions to be validated. Governance – Oversight of the end-to-end acquisition process. Reporting on status of value drivers and synergies to senior management and investors such as private equity shareholders. Hostile Takeover – Acquisition which does not have the support of the management and/or owners of the business. Rare for non-public companies. Integration – Also known as Post-Merger Integration (PMI). The process of delivering the synergies and operating model change following deal close to achieve the value drivers. Integration Executive – The manager within the acquiring business who is accountable for delivering the value drivers for an acquisition.
© 2017 RitchieHogg Limited
Management Buy-Out (MBO) – Transaction in which the management of the business acquire the ownership from the shareholders. Often backed by private equity investors. Merger – Transaction in which two companies agree to combine operations and issue new shares. In practice, most mergers are acquisitions but called mergers for PR purposes. Operating Model – The operational structure of the company, covering processes, people, suppliers, locations, technology, assets, etc. The acquired business may adopt the buyer’s operating model, retain its own, develop a new approach, or use some mix of all options. Private Equity – External investor who may provide funding for an acquisition or MBO in exchange for a share of the business. Professional investors who will also provide strategic advice to management. Screening – Initial analysis of potential acquisition targets to determine which should be progressed to assessment and subsequently due diligence. Strategic Rationale – The strategic reason for undertaking an acquisition rather than investing company resources elsewhere. Defines the specific outcomes (value drivers) which the acquisition must achieve and informs all subsequent decisions. Synergy – Opportunity for cost saving or business growth from undertaking the transaction. Next level of detail from value drivers. Transaction – General term for any activity in which a business is bought or sold. Valuation – The amount that a buyer is willing to pay for a company to deliver an acceptable return. The actual price will be negotiated with the seller. Value Driver – The reason that a buyer wants to acquire a specific company, e.g. synergies, and why they believe they can achieve a positive return on investment on the valuation. Value Realisation – Undertaking the activities required to achieve the value drivers. The integration executive has accountability for this, but will rely on other managers to execute the plan. 4
